How Declines in Tourism Affect Municipal Bonds and Local Economies

The stability of municipal bond markets is intricately linked to international tourism, a factor often overshadowed by interest rate movements and fiscal policies. According to VanEck, a decline in foreign visitors to the United States can significantly impact revenue bonds and local budgets, ultimately affecting investor sentiment.

Why International Tourism Trends Matter for the Municipal Bond Market

International tourists contribute significantly to state and local revenues through various taxes, including sales, hotel, and transportation-related levies. Major tourist destinations such as Florida, New York, Nevada, and California heavily depend on these revenues to fund essential services. For instance, Florida‘s state sales tax collections reached over $36 billion in fiscal year 2023, accounting for more than 70% of the state’s general revenue, as reported by the Florida Department of Revenue.

Hotel taxes in cities like Las Vegas and New Orleans are directly linked to tourism activities, and a decrease in occupancy rates leads to reduced revenues. Similarly, transportation-related taxes from rental cars and ride-hailing services in metropolitan areas like San Francisco and Los Angeles highlight the embedded nature of tourism in municipal fiscal health.

Economic Ripple Effects Beyond Direct Tax Losses

The decline in international tourism affects more than just tax collections. Local economies reliant on tourists face job losses in the hospitality and retail sectors, reduced business profits, and weaker income and corporate tax receipts. Hawaii exemplifies a high-risk area, where tourism significantly contributes to the states GDP, making it vulnerable to global travel trends.

While domestic travel provides some relief, U.S. tourists typically spend less and have shorter stays compared to international visitors, making the absence of the latter more economically detrimental.

Changes in Passenger Traffic at Major U.S. Airports

Passenger traffic at major U.S. airports, including Orlando, New York City, Los Angeles, Atlanta, Denver, Dallas, Houston, and Washington D.C., reflects the impact of changing international travel patterns. A year-on-year analysis of these airports shows notable variations in passenger numbers, highlighting the broader implications for the travel-dependent sectors.